Divorces are often messy and almost always emotional. When Major League Soccer’s Columbus Crew tried to leave for Austin a few years ago claiming business problems, a lawsuit stopped them in their tracks. The Los Angeles Rams recently won the Super Bowl, and this past December St Louis – their former home city – received $790m as part of a settlement related to their relocation.
Relations sour quickly when a pro sports team up and leaves. Or threatens to. Or the numbers don’t add up. And things between Glendale and the Arizona Coyotes had been on the skids for years when a missed rental payment brought the disorder to national attention at the end of last year. Still, beyond the headlines, the Coyotes and Glendale divorce provides a grim and vivid tale about how things can go south for taxpayer subsidized sports ventures.
And often a parting of the ways is best for both sides.
First, a brief timeline of the Arizona Coyotes, who just may be cursed:
1996 – the Winnipeg Jets relocate to Phoenix, Arizona.
2003 – the Phoenix Coyotes relocate to nearby Glendale and the Gila River Arena.
2005 – Jerry Moyes buys the team.
2009 – Moyes places the team in bankruptcy. The NHL takes over and signs a short-term lease extension with the City of Glendale.
2010 – An ownership bid to buy the team is derailed by the threat of litigation.
2013 – After the league threatens to relocate the team, Glendale signs a 15-year lease to support a new ownership group: Renaissance Sports & Entertainment. In 2014, they change their name from the Phoenix Coyotes to the Arizona Coyotes.
2015 – Glendale voids the long-term lease after an alleged violation of conflict of interest laws.
2016 – the Arizona Coyotes announce plans to move to the Arizona State University campus in Tempe, a 25-minute drive from Glendale, and build a new arena there. The university subsequently backs out of the deal.
2016 – Glendale enters into a contract for sports entertainment firm AEG to manage the Gila River Arena.
Since the team moved south from Canada they have hardly distinguished themselves. The Coyotes have not cracked the top half of NHL attendance since 2001, and have made the playoffs just once in the last nine seasons. This season they sit dead last in the Central Division.
Off the ice, things have been even worse. As a rule of thumb, even in taxpayer subsidized private-public ventures, taxpayers seldom know the true state of any pro team’s finances. After all, teams have every reason to plead poverty: they have to negotiate a CBA every few years with the players’ union; they want to maximize leverage when negotiating lease terms with a city or county; and often it’s in a business’s interest to keep profits – which are taxable – as minimal on paper as possible.
The Coyotes, though, got dragged into bankruptcy court in 2009 by then owner Moyes, so some facts emerged. And things were very, very bad. Moyes filed documents to support his claim that the team had lost over $70m in the years leading up to bankruptcy, and was on track to lose $45m that season. An audit showed the team had never turned a profit on paper – not all that odd for a modern sports team – but the loss of $54.8m for 2008 was jaw-dropping.
One argument, espoused by Moyes, is that the bad sight lines at the America West Arena hurt attendances and ergo the bottom line, placing the team in a hole it could never dig itself out of. Yet after bankruptcy, the team relocated to Glendale and the city ponied up $180m of the $220m price tag for constructing a new arena. Glendale even guaranteed to pay $15m per year in “management fees” to the new ownership group and included a generous provision: if the owners, RSE, accrued more than $50m in losses in five years, they could relocate.
Yet not even one year passed before a lawsuit was filed in a dispute over naming rights. Then, Glendale asserted that the city was only earning about $4-5m per year from parking and non-hockey revenue, as opposed to the projected $7-8m. Things were even worse in 2014 as Glendale claimed to be losing money on the deal and the city council voted to terminate the original lease due to an alleged conflict of interest. Supposedly, a city attorney involved in drafting that lease left afterwards to work for the Coyotes.
The low revenue for these years is not surprising given that teams need fans to turn up to games if they’re going earn money from parking. NHL teams have 41 or so home games per year. From 2000 to 2004, the Coyotes average attendance was 14-15,000 per game. By 2019, attendance had dipped into the 13,000s. One journalist speculated that the problem was location: Glendale is too far from the more affluent areas of Phoenix. The theoretical suburban hockey mom with her minivan of kids would not make the drive that often to catch a game.
In 2016, Glendale signed a contract with AEG to manage the Gila River Arena and the Coyotes issued a statement saying that: “We have a strong relationship with AEG and we are very excited.” In a radio interview, though, the Coyotes president stated that the team wanted a short-term deal. They were publicly eyeing an exit to Tempe, but then newly-elected Glendale city manager Kevin Phelps said he had “not given up on keeping the Coyotes.”
The Coyotes had had a chance to submit their own proposal to manage the arena, but failed to submit a bid. Thus, in April 2016 a “Gila River Arena Management Agreement” was signed between the city and AEG Management Glendale LLC. AEG basically took on booking non-NHL events, covering operating costs including hiring, dealing with food and drink sales, ticketing and parking.
The key provision, though, stated that AEG shall “negotiate, enter into, administer, amend and terminate all contracts relating to the use of Arena facilities and services, including the Coyotes lease … subject to the prior written approval of the City.” Basically, Glendale hired AEG to play hardball with the Coyotes and turn the stadium into a profitable venture.
Season ticket sales were energized in 2019 by the signing of Phil Kessel, but long-suffering fans had not forgotten the gimmicks from yesteryear. Wayne Gretzky becoming a part-owner in 2000 and being inducted into the franchise’s “Ring of Honor”, despite having never suited up for the team. Or the Coyotes signing 40-year-old Brett Hull to a two-year deal for $4.5m and unretiring his father’s Winnipeg Jets number – No9 – for him to wear. Hull’s first season in Arizona was canceled due to a work stoppage, and he played just five games into the second season before retiring.
Of course, all professional sports teams deploy gimmicks to attract fans. But the Coyotes’ open flirting with a relocation to Tempe since 2016 “to expand the team’s fan base” increasingly poisoned relations with the city of Glendale. This past summer, Phelps said: “They’ve been talking about moving for years. That really kind of forced us to then contemplate, ‘Well, if they do move what would be our gameplan?”
The city commissioned an economic study that found hosting live events and concerts at Gila River Arena would be more profitable than hosting Coyotes games. While housing an NHL team involves keeping the ice frozen and play-ready for several months of the year, the ice is only one inch of brine water and easily covered to make way for concerts. In theory, an arena can host NHL games one night and a concert the next. The massive stumbling block is that the NHL does not release the season’s schedule until late April, and play starts in October. This isn’t such a problem in a huge market like New York or Los Angeles where big acts are desperate to perform and are more likely to adjust to a team’s schedule. But it’s a tougher ask in a place like Glendale, where best-selling artists may not be interested in appearing in the first place.
Things got nasty in 2021. Glendale officially announced that the Coyotes year-to-year lease would not be renewed. The Coyotes paid $1.4m in outstanding taxes to the county after the threat of being locked out of their own arena. An email dated 9 December 2021 from ASM Global to Patrick Murphy, the Coyotes president, clarified that the team had issued checks for a total of $999,000 but these were partial payments and the franchise still owed over $2.7m. The email then details a structured payment plan with funds due on 20 December 2021, 31 January 2022 and 1 March 2022.
The kicker is in the last few lines in ASM’s email to the Coyotes: “We have endured numerous disputes and have never billed the Team for anything but actual expenses. As you are aware, these game expenses are for actual out-of-pocket expenses that ASM Global incurs on behalf of Team. Banking these expenses is a courtesy, not an obligation of ASM Global.” Via email, Phelps told the Guardian that the Coyotes did make payment for their charges through 31 December 2021.
A 20 October 2021 letter to the Mayor of Glendale on Coyotes letterhead from Marina Carpenter, general counsel for the team, memorialized some key meetings but also put forth disputes. For example, she conceded that the Coyotes did not resolve their financial obligations for the 2020-21 season until after the city “graciously waived 100% of the base Arena Rent.” She tried to lay the blame on ASG, claiming they “did not provide sufficient documentation” for invoices. She also noted that the Coyotes had “been forced on numerous occasions to request additional supporting documentation from ASM resulting in payment delays.”
These explanations raise the question: why do you need supporting documents for an invoice? Isn’t that the point of invoices? And can’t you pay an invoice, then dispute it later? In a healthy long-term business relationship with mutual trust and goodwill, yes. But not when there’s no sense of commitment, and plenty of penny pinching and finger pointing.
There’s no villain in this tale. Glendale has an obligation to the taxpayers, whereas both AEG and the Coyotes are businesses with obligations to maximize profit for shareholders. Glendale spent almost $200m for an arena and their anchor tenant missed payments. That things got nasty, and so brazenly zero-sum, indicates a bad match at the onset. A business was struggling, so who had to cover the losses? Even when the team was winning, attendance was less than spectacular.
The Coyotes were publicly hoping for a new $1.7bn arena and entertainment district in Tempe. Instead, in February they signed a three-year deal worth $120m with ASU to play at a 5,000 seater collegiate arena. Even during their worst attendance years in Phoenix and Glendale, the average was well over double that. Fans and armchair economists have to wonder how you can support a professional NHL team with ticket sales and parking revenue effectively capped? Tempe is 11 miles from the population hub of Phoenix, but Glendale is only nine miles away. So will there be any boost from the team’s new location?
Glendale, meanwhile, has moved on. The city has announced plans to invest millions in remodeling and upgrading the Gila River Arena. And, of course, having the NFL’s Arizona Cardinals at the nearby State Farm Stadium nearby helped their leverage and bargaining position with the Coyotes. The city never had to depend on the Coyotes to be a golden goose.
During the Moyes bankruptcy fiasco, the NHL threatened to relocate the team back to Winnipeg, which in part cajoled Glendale to sign a long-term lease with new ownership. However, after the Atlanta Thrashers moved to Winnipeg in 2011 and that threat lost bite, Glendale looked at the books and realized the city was hemorrhaging money. Then they brought in AEG to deal with the Coyotes and professionalize the setup.
The NHL has been vaguely supportive of the move to Tempe, with statements about the team’s “long-term” future in the area. However, a short-term lease in a collegiate arena is unsuitable for a pro team. Unless the team gets new ownership with deep pockets who want to pay to build their own stadium, or the proposed Tempe Entertainment District happens soon, the wandering Coyotes may have emerged from bankruptcy only to fall back into a death spiral. With vastly diminished ticketing and parking revenues starting next season, can the team even keep up with bottom-feeders like Buffalo and Ottawa who at least put more than 12,000 fans in the stands each game? Would the league ever contemplate intervening or funneling assistance to the club if current ownership wants to tap out?
But these concerns are at least no longer shared with the Glendale or local taxpayers. Any future problems will belong to the Coyotes or Tempe. Or maybe both.
